Quarter of final salary pension schemes close

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The Independent Online

One in four British companies offering generous final salary pensions closed the schemes to new staff in 2003, according to the National Association of Pension Funds (NAPF).

The finding was the latest evidence that employers are abandoning the schemes, which offer a guaranteed pay-out on retirement, because they are so expensive to fund as a result of falling stock market returns and the increasingly long lives of pensioners.

This year's closure rate of 26 per cent came after 19 per cent of companies closed final salary schemes last year and 10 per cent the year before, the NAPF said.

Christine Farnish, chief executive of the NAPF, said: "From the current trend it is clear that 20 years from now the vast majority of people saving through the workplace will be saving in defined contribution schemes."

The defined contribution model, which has been on the rise in the past 10 years, works on the basis that individuals accrue cash which is invested in the stock market. There is no guarantee about the amount they receive on retirement, as the pay-out is entirely dependent on the performance of the investment over time.

The NAPF's survey found the number of new defined contribution schemes last year increased by 10 per cent. The body also found that the amount of money ploughed into these schemes remained constant at 6 per cent of payroll costs, compared with 16 per cent for final salary schemes.